Hello @MikeP, thank you for taking the time to provide your detailed feedback and for your active participation in the governance forum. We appreciate your input. In consultation with the team and the council members, we’d like to address the points raised from you below:
Point #1: The vote was a retroactive change to users with existing vesting schedules, posing reputational risks and possible regulatory issues.
First, let’s clarify how HIP-5 will be implemented to make sure everyone is seeing the same picture. The proposal is not clawing back any vested esHMX. It is only extending the vesting period of the remaining unvested tokens to 36 months. To avoid any doubt, let’s look at an example:
- Let’s say Alice started vesting 100 esHMX 6 months ago.
- Today, she would have 50 vested HMX ready to claim (50% of the 12 months vesting period)
- After HIP-5, the remaining 50 esHMX will be extended for an additional 30 months with a vesting rate of 50 / 30 = 1.667 HMX per month.
The Terms & Conditions, which every users have accepted when using the platform, clearly state that the platform reserves the right to “…at our sole discretion, from time to time and with or without prior notice to you, modify, suspend or disable (temporarily or permanently) the Services, in whole or in part, for any reason whatsoever.” So the protocol is acting very much within its T&Cs. Not only that, the proposal was approved through the proper governance process which was ratified by users. Also, comparing this with private investors isn’t accurate since private investors have SAFTs while users get esHMX as a bonus for using the platform.
Point #2: The original HMX docs did not include a “right to modify” clause, making the change a breach of a contractual agreement.
As mentioned in Point #1, the Terms & Conditions do allow for modifications, so no rules were broken. Decentralized platforms are inherently dynamic, and governance structures are designed to adapt to changing circumstances. The community’s ability to propose and vote on changes is a form of flexibility by design.
Point #3: HMX governance lacks a requirement for minimum voter turnout (quorum), which can lead to insufficient support for proposals.
We appreciate your concern, but we’ve had a quorum requirement of 150,000 HMX tokens in place right from the start. You can find this info in the Governance Process forum topic which we definitely recommend you to read. This quorum is there to make sure we have enough community backing for proposals that pass, which addresses exactly the issue you’re worried about.
We’ve always been vigilant to ensure that we never fall below the 150,000 HMX quorum for any passed proposals. In fact, this quorum has consistently been met and often far exceeded, demonstrating that we’ve never really been close to the minimum threshold. We would also like to point out as well that not all DeFi protocols elect to use the quorum system due to voters’ apathy which is typical in DeFi. It’s a balancing act of not setting the quorum too high as to prohibit anything being passed.
To go into a little more detail
Our quorum of 150,000 tokens represents 7.9% of the circulating supply.
According to our research, the average number of tokens used for voting in other Web3 projects typically hovers around 5% of the circulating supply. Here’s a more detailed breakdown of our research:
- Uniswap: Average of 4.5% of tokens used relative to circulating supply
- Sushiswap: 7.8%
- GMX: 12.2%
- dYdX: 5.0%
- Aave: 4.3%
- Arbitrum: 4.0%
- Hop: 5.4%
- Stargate: 1.6%
Our quorum requires a minimum participation of 7.9% of the circulating supply, as mentioned earlier. The average participation in our votes is approximately 556,000 tokens, which represents 29% of the circulating supply. This is much more than the projects mentioned a bit earlier.
Note: These figures depend on the prominence of the governance system of the project in question, user engagement, and the tokenomics of the governance token.
Having an average participation rate approaching nearly 1/3 of the circulating supply, I think we’ll all agree that in its current state, our governance system is fair and that HMX holders have a significant impact on decisions made.
Point #4: The governance process should be updated to include topics that should be off limits. Examples we’re seeing here would be changes that impact prior agreed-upon rewards or incentives programs. We should also consider a more robust enforcement process to ensure future proposals meet the requirements already outlined.
DeFi needs the flexibility to adapt quickly, and putting restrictions on topics could hinder that flexibility. Our Governance Council is there to ensure proposals are in the community’s best interest, and we believe this approach works best.
Point #5: Kill HIP 5 as non-compliant as it lacked sufficient details for an informed vote, and contained actions that have a precedent to harm brands, if not pose potential legal issues. The only scope up for consideration should be the vesting schedule for esHMX earned after the implementation date. Not everything can be voted on. That’s why countries have constitutions, companies restrict shareholders from certain decisions, etc.
HIP-5 was passed through the proper governance process and complies with our Terms & Conditions. We cannot and will not just simply “kill it.” Doing so would go against the values of a governance process and would be an abuse of that system. That being said, we acknowledge your concern and from our side, and since there is no immediate urgency to implement this change as it’s not related to a security issue, here is what we propose to do as next steps:
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We will delay the implementation of HIP-5. All vesting will continue as-is.
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After that, we will put forth HIP-5-3 (part 3) for the community to vote on whether HIP-5 should only be applied to new vesting positions or also with existing positions as well.